Under the recently extended provision of the tax law, this strategy will not work for New York residents if death occurs within three years of the gift.

In Seiden, the first spouse’s estate was not subject to federal estate tax because he died in 2010, when the federal estate tax was not in effect. But the inclusion of the decedent's entire federal gross estate, including property for which she had made a federal QTIP election, is includible. In recent years, due to a federal case, practitioners have been excluding such property on estate tax returns and even seeking rebates for taxes previously paid on such holdings. endstream endobj startxref However, they do not apply to conveyances made pursuant to a binding written contract entered into on or before April 1, 2019, provided that the date of execution of the contract is confirmed by independent evidence, such as the recording of the contract, payment of a deposit, or other facts and circumstances as determined by New York State. The Treasury and the IRS can cross off another project from their joint priority guidance plan.

60 0 obj <> endobj As a result of the legislation, if a QTIP election is made for New York estate tax purposes upon the death of the first spouse and no federal QTIP election is made because the first spouse’s estate is not required to file a federal estate tax return (for example, if the estate is below the federal filing threshold), the trust property will be subject to New York estate tax upon the death of the surviving spouse. estate tax return, IRS Form 706, for the first spouse’s estate. 1(f), which seems to exclude QTIP property by saying the Massachusetts gross estate equals the federal gross estate plus any QTIP property on which an election has been made pursuant to M.G.L. Posted by 2016-49, the IRS has indicated that it will not treat an unnecessary QTIP election as void if the executor made a portability election. The Massachusetts Department of Revenue argued that the trust funds should be included because she had made the federal QTIP election. Fourth, to the extent the surviving spouse makes a QTIP election, such property will be in her taxable estate when she dies, assuming it still exists. In light of the recent increases to the estate tax exclusion amount, making a Clayton QTIP It is this change in legal relationship that occurred upon the death of the decedent that constitutes a transfer for estate tax purposes and brings the QTIP assets within the Massachusetts estate. This decision confirms that that is the right course of action. A QTIP trust does not qualify for the estate tax marital deduction under traditional tax rules due to its restrictive nature. . 327 (1991), rev'd, 976 F.2d 1486 (5th Cir. v. Comr.

QTIP = $2,000,000.00. 79 0 obj <>/Filter/FlateDecode/ID[<38204DA6EC9DBF4A97E87601D0DB5CFC><7E5D3023B7184944AFD54526DD15D849>]/Index[60 42]/Info 59 0 R/Length 92/Prev 29635/Root 61 0 R/Size 102/Type/XRef/W[1 2 1]>>stream %%EOF This is probably relevant mostly for larger estates and for older trusts, since given the current $11.58 million federal estate tax threshold, few estates today need to file a federal QTIP election. For estates of individuals who are not residents of New York at death, the taxable estate includes such gifts only if they consist of real or tangible personal property located in New York or intangible personal property employed in a business carried on in New York (and only if the gifts were made while a New York resident). When the surviving spouse subsequently died, the Surrogate’s Court held that the QTIP trust property was not subject to New York estate tax because, under New York law, property that is not includible in a decedent’s estate for federal estate tax purposes was not subject to New York estate tax and, in fact, the trust property was not includible in the surviving spouse’s estate for federal estate tax purposes because no federal QTIP election had been made at the first spouse’s death. 2016-49, a QTIP election can be made on a portability-only return.

Second, anything you give your spouse is eligible for a spousal deduction and is not subject to taxation (which is why the U.S. Supreme Court required the federal government to honor same-sex marriages, holding that to give some surviving spouses this benefit and not others was unconstitutional). In the case at issue here, when Robert Chuckrow died in New York in 1993, his widow, Adelaide Chuckrow, took both federal and New York state marital deductions on the $844,000 Robert left her in a QTIP trust. However, the tax code now permits your Executor to claim the marital deduction for amounts transferred to a QTIP trust by making an election on your estate tax return. There is an exception for gifts made between Jan. 1, 2019, and Jan. 15, 2019, which are not added to the taxable estate. Proc. But the Court rules that this provision only applies to property that was in the Massachusetts taxable estate of the first spouse to die. Proc. By then, their value had grown to $13 million, meaning their inclusion could result in a very high tax bill.

(A QTIP election is an election made on an estate tax return that enables assets passing to a trust for the benefit of a surviving spouse to qualify for the marital deduction.

SJC Rules on Effect of Out-of-State QTIP Election in Massachusetts, 7 Reasons You Should Consider A QTIP Trust, Beware the Mass Estate Tax at the Threshold. Third, QTIP trusts (which, if you want to know, stands for Qualified Terminable Interest Property) permit the surviving spouse to treat some, all, or none of the property in the trust created by the deceased spouse as qualifying for the marital deduction, deciding within nine months of her spouse's death what will bring the best tax results. The basic real property transfer tax is payable by the seller. "QTIP" is short for "Qualified Terminable Interest Property." Perhaps only of interest to estate planners, but of great interest to them, the Massachusetts Supreme Judicial Court has ruled in Shaffer v.Commissioner or Revenue (SJC-12812, July 10, 2020) that out-of-state QTIP trusts are includible in the Massachusetts estates of surviving spouses if the deceased spouse's estate filed a federal QTIP election for the estate. As described below, the rate of tax depends on a number of factors, including the kind of property transferred and the amount of the consideration. The question was whether the trust assets would be in her Massachusetts taxable estate. To understand what this case is all about, you need to know a few things about our estate tax system. Under recently issued Rev. c. 65C, sec.3A: ''Massachusetts gross estate'', the federal gross estate, whether or not a federal estate tax return is required to be filed, plus the value of any property (i) in which the decedent had at death a qualifying income interest for life described in subsection (c) of section three A, . Any election … The increased New York State taxes are separate from, and in addition to, the tax imposed by New York City on these transfers. $��X���/ �R "�@�%qH0��7 b-H������A|��A� ql%#�i ��������o & I 0 On the estate tax return, the executor must make both (A) the QTIP election, for some portion or all of By the time Adelaide died in 2011, she had moved to Massachusetts. Receive weekly email updates about legal developments that affect you. This “gift add-back” provision, by its terms, did not apply to estates of decedents dying on or after Jan. 1, 2019.

IRS Revenue Procedure 2016-49, effective as of September 27, 2016, settles an issue arising when both QTIP and portability elections are made on a decedent’s estate tax return. Fourth, it's possible to take a state marital deduction and not a federal one, or vice versa. It could also affect some wealthier individuals' choice of residence since in cases such as this, since choice of residence can have a large effect on taxes paid on their estates. This provision was enacted by the Legislature to reverse the result of the Seiden case. Co-Chair, Trusts & Estates; Co-Chair, Nonprofits & Tax-Exempt Organizations, Loeb & Loeb Expands Trusts and Estates Department With Addition of Matthew McKim, Gabrielle Vidal and Barry Slotnick named 2021 “Lawyers of the Year” by Best Lawyers in America, 22 Loeb Associates Named to Best Lawyers: Ones to Watch List, Estate Planning and Carried Interest: Estate Tax Reduction Strategies for Private Equity and Hedge Fund Founders. The estate, understandably, relied on M.G.L. QTIP trust is a type of trust and an estate planning tool used in the United States. By Harry S. Margolis. If the estate of a decedent dying in 2010 opts out of the federal estate tax, the executor may make an irrevocable QTIP election on the 2010 Minnesota estate tax return using the 2010 federal estate tax return as a worksheet. The legislation increases the mansion tax rate for sales of residential real property in New York City where the consideration is at least $2 million. The property in the trust is generally subject to estate tax at the surviving spouse’s death, effectively resulting in a deferral of estate tax on the trust property.). The Tax Law now requires a New York QTIP election to be made directly on a New York estate tax return for decedents dying on or after April 1, 2019. Remember, any property for which the election is made will be included in the decedent’s spouse’s estate … A QTIP trust is often used in order to take advantage of the marital deduction and still control the ultimate distribution of the … In either case, list the property on Schedule M. If you’re choosing not to use the QTIP election (to elect out), be sure to specifically identify the trust as being excluded from the election.

According to Rev. h�bbd``b`� Harry S. Margolis on July 29, 2020. The New York City transfer tax was not increased. 101 0 obj <>stream [Cite omitted.] After her death, her daughters, as the beneficiaries, received a present interest in the QTIP assets. Increase in taxes on transfers of real property. The following table illustrates the tax rate imposed by New York State under the legislation for sales of residential real property in New York City at various levels of consideration. Click here to download a PDF of the full alert. The property in the trust is generally subject to estate tax at the surviving spouse’s death, effectively resulting in a deferral of estate tax on the trust property.) The new legislation extends the provision so that it applies to estates of decedents dying prior to Jan 1, 2026. This will be necessary no matter what the value of the first spouse’s estate actually is. Avoiding Massachusetts Taxes: So You Want to Move to Florida? If so, read: Get Your Ducks in a Row. Beware Beneficiary Designations - Massachusetts Estate Planning. One strategy to avoid New York estate tax has been to make gifts to reduce the amount of the estate to less than the New York exemption amount (currently $5,740,000).